Whilst relative scale and reciprocal shares of trade partners’ business can determine the balance of power between a supplier and its major customers, it is still possible for medium and smaller suppliers to exert influence over a customer representing more than 20% of its business.
Essentially, a retailer relies upon a brand’s ability to attract consumers to a store, if only to present an own label equivalent at a price that is 20% lower than that of the national brand. Whilst skilled positioning of the brand and aisle-based shopper-marketing can optimise off-take for both parties, it is obviously crucial that suppliers preserve brand equity in order to ensure survival.
Equally, whilst many brands are liable to risk-free substitution, the retailer still needs outsourced innovation and a means of meeting niche-needs, via brand and own label.
However, whilst medium and smaller players are at an obvious disadvantage in terms of balance of power, even major suppliers need to systematically explore and optimise the various sources of power available in dealing with major customers.
Accordingly, a systematic exploration of the various sources of organisational power and their application may help. Essentially the sources of potential power in a supplier-retailer relationship include Expert Power, Ideas Power, Goodwill or Referent Power, Information Power, Gatekeeper Power, Status Power, Reward Power, Political Power, and Coercive Power.
A supplier can optimise its expert power by capitalising upon its consumption insight within its category, coupled with its breadth of experience of retailing that category in all possible routes to consumer, on and offline. This can complement the major customer’s deep but relatively narrow expertise in a single format.
As a retailer continues to outsource risk and churn buyers, it can dilute its ability to innovate, especially at product level. Suppliers that become a continuous source of new ideas can develop influence greater that their scale normally allows. Those in doubt re idea-power should ask why so many major companies are actively acquiring start-ups.
Despite what can be a hostile environment, it may still be possible to build pools of goodwill within parts of the buying organisation, in readiness for occasional drawdown of favours..
The ability to identify and convert information into insight, and apply it creatively, can generate value in excess of its cost, to even the most resistant of buyers…
However small the budget, a NAM as gatekeeper has the ability to turn on or off the supply of resource in terms of time, money and people, even insidiously, when a more overt demonstration of gate-control might seem unduly provocative.
Status within the supplier base, often totally unrelated to scale, can be used to influence behaviour, however obliquely.
The ability to reward positive behaviour with exclusivity, recommendations, or simply interesting projects can confer value that overrides strict monetary measures, short term.
Whilst playing politics can represent risk for ‘non-experts’ it is naïve to expect logic to always carry a deal. Understanding and manipulating the real power organigram can facilitate acceptance of a good deal and even ensure willing compliance, carefully managed.
Finally, once in a lifetime, circumstances can sometimes be engineered that result in being able to back even a stronger partner into a corner, coercing them to accept and implement a good deal, for their own good…
However, all of the above can come to nothing if the various sources of power are not channelled into an all-encompassing negotiation session that includes all aspects of the business relationship, with each business function adequately represented, and each ingredient of the deal having an acknowledged value for both parties, all factored into a final settlement that benefits both parties.
Anything less comprehensive underestimates the danger of allowing current unilateral power-plays to proceed unchallenged…
